Housing slump and job losses mark slow start to 2013 in Canada

Canadian employers unexpectedly cut jobs in January while home builders slowed the pace of new construction to the least since 2009, suggesting a languid start to the new year for the country’s economy.

Employment fell by 21,900 in January on declines in manufacturing and education, Statistics Canada reported today. It also reported exports and imports fell in December. Separately, Canada’s housing agency reported the annual pace of home starts plunged 19% in January from a month earlier. Doug Porter of BMO Capital Markets said the data marked “a day of infamy for Canadian economic stats.”

The world’s 11th-largest economy probably had its worst six-month performance since the end of the 2009 recession in the second half of last year, as exports declined and concerns about the global expansion prompted businesses to curb spending, leading economists and policy makers to scale back their expectations for 2013. The Bank of Canada, alone among Group of Seven central banks with a tightening bias, said on Jan. 23 that the need to raise rates is less urgent.

“Domestically, we’ve had a spate of weaker-than-expected numbers,” said Mark Chandler, chief fixed-income strategist at Royal Bank of Canada in Toronto. “We’re definitely lagging the improvement we’re seeing elsewhere” in the world.

The Canadian dollar depreciated 0.5% to C$1.0011 per U.S. dollar at 10:30 a.m. in Toronto, weakening through parity. Canadian 10-year bond yields fell to 1.98% from 1.99% yesterday.

Trading in overnight index swaps shows investors are pricing in a 1.3 basis point increase in the Bank of Canda’s benchmark rate by October. That’s the least in six months.

Weakness Signs

Today’s reports mirror other recent signs of weaknesses. Canada’s inflation rate was 0.8% in December and November, a three-year low that is beneath the bottom of the central bank’s target bank for price increases. The Citigroup Economic Surprise Index for Canada fell to its lowest since Sept. 27 today.

Bank of Canada Governor Mark Carney pared his 2013 growth forecast to 2% on Jan. 23 from an October prediction of 2.3%. The economy will reach full output in the second half of 2014 instead of the end of 2013, he said, as growth accelerates to 2.7% next year.

Statistics Canada said today full-time employment fell by 20,600 in January and part-time positions by 1,400.

The labor force shrank by 57,500 in January, the largest drop since April 1995, and the participation rate fell to 66.6% from 66.8%.